3 Methods to use Life Insurance as an Investment During Retirement

Any discussion of life insurance as a retirement investment once you are sure to draw strong opinions on both sides of the argument. Proponents of the idea point to the unique nature of the life insurance, such as guaranteed cash value, tax-deferred growth, the death benefit tax-free and duty-free access to cash. Opponents argue that life insurance can not be a good investment because there are too many costs and returns are very small. Both sides may have some benefits, but their arguments do not apply to all financial situations. The answer really depends on what you want to achieve. In some cases, life insurance may be the only solution, which will make it a smart investment.

You Want to Maximize Your Pension

If you receive a pension at retirement, you'll be treated to a few different options. Single-life option to pay the highest monthly income, but there will be no income for your spouse if you die. Joint-life option will pay the income to your spouse, but you will receive a reduced monthly payments at this time. You can take advantage of the pension maximization strategies using life insurance to maximize your current retirement income while providing for a lump-sum benefits which can be converted into a lifetime income for your spouse. For example, if a single-life pension payments at the age of 65 is $ 5,000 per month, and the choice of living with you is $ 4,000 per month, select a single option of living is higher. You then can apply the $ 1,000 monthly difference, in whole or in part, for a life insurance policy. The death benefit will be big enough to replace at least a selection of a lower payment of $ 4,000 per month. Because the results received death benefit tax free, your partner will benefit from higher after-tax income.

Pension maximization strategy is rather complicated in determining whether you would be better off with a single-life or joint life choice. A number of factors need to be considered, such as your age and your spouse, your projected life expectancy, your health, tax bracket and the dollar difference between the two options. If you have health problems and can not qualify for preferred rates, this strategy is unlikely to work. It will be important to work with a qualified life insurance professionals that can perform complex calculations.

You Want to Maximize Your Estate

If your estate exceeds $ 5,430,000 in 2015, it could be subject to estate tax. With the estate tax rate at 40%, your heirs may have to sell assets to pay taxes and other costs associated with settling the estate. Which can be devastating, especially if it resulted in the forced sale of a business or valuable assets. Life insurance is the only solution that can provide direct capital to pay estate settlement costs. Working with estate planning attorney who can determine the most appropriate arrangements, which may include creating an irrevocable life insurance trust (Illit) to have life insurance. A Illit eliminate the value of your life insurance of the estate so it is not included for tax purposes.

You Want to Make the Most of a Legacy

Use life insurance to maximize the financial legacy, especially if it is likely to be reduced by taxes. This strategy is often used to maximize the transfer of qualified retirement plan (QRP) at the time of death. For example, assume you have an individual retirement account (IRA) with a balance of $ 500,000, and you have no other assets and income sufficient to cover your needs. You consider passing IRA to your children, but when you turn age 70.5, you will need to start making the required minimum distribution (RMD) regardless of whether you need them. Which would reduce the value of assets, and the fact that you have to pay tax on the distribution of further reducing their value. Additionally, when your children receive the IRA, they will be required to pay income tax on the distribution.

If the IRA is a legacy asset, you can turn it into a legacy tax benefit by taking the current distribution and use them to buy a life insurance policy. You will have to pay tax on the distribution, but when you use the money to pay premiums on a life insurance policy, will substantially increase the value of your estate. After your death, your children will receive the death benefit tax-free income and the rest of the IRA. Everybody wins with this strategy.

Term insurance or permanent insurance cash value?

term insurance is almost always used to solve a temporary need, which is why the young and middle-aged people to buy is not a permanent life insurance. Once they no longer have a need for insurance, it can only go. term insurance is not the best choice for retirees who are trying to maximize retirement, estate or inheritance; can be expensive, and people who are older usually can not qualify for long-term coverage of more than 10 or 15 years. If you'll need life insurance for the rest of your life, the best option is the cash value of a permanent life insurance policy. Although the premiums are much higher than term policies, they remain for the life of the policy; and as the policy ages, a larger amount of the annual premium is applied on the value of cash. Regardless, the source of premium dollars that are used to this life insurance solutions generally funds transferred from one asset to another, just applied differently.